Is bitcoin going to $400,000 or zero?
The former doesn’t preclude the latter, but for now, the digital currency is heading straight up, and investors don’t seem all that worried about a bubble.
Growing demand among mainstream investors helped bitcoin trade close to the US$19,000 mark on the Coinbase exchange Thursday, before it pared back some of those gains.
The ascent of the world’s largest cryptocurrency continues in the face of widespread criticism, with a remarkable rally that is now being buoyed by the upcoming launch of trading on two established U.S. exchanges. Trading on the Chicago Board Options Exchange begins on Sunday at 6 p.m. ET, followed by the Chicago Mercantile Exchange a week later.
“I believe that bitcoin is a rapidly emerging new asset class,” said Harris Fricker, chief executive officer of Toronto-based GMP Capital. “All bitcoin does is it makes mathematics the central bank governor.”
While increased access may add to bitcoin’s legitimacy, it doesn’t necessarily mean more stability.
Bitcoin was still trading up more than 20 per cent for the day at about US$16,800 at 4 p.m. on Thursday, and has averaged a daily price change of almost three per cent since August 2011. The most recent surge of approximately US$3,000 occurred in less than 24 hours. A single bitcoin, by contrast, was worth less than US$1,000 at the beginning of 2017.
“It could well be that the bitcoin mania, with the price now looking completely vertical, is posing some serious competition for the traditional ‘anti-currency’ safety valve for those who are dubious of ‘fiat money,’” said David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates.
The digital currency’s founders stipulated that a total of only 21 million bitcoins can be mined, so like gold, more cannot be issued by central banks. That’s why investors who were keen on buying gold five or 10 years ago, are now eager to load up on bitcoin, and sales of the once-popular American Eagle gold coins have slumped to their lowest level in a decade.
Reports suggest 100,000 new customers are joining the bitcoin party every day, and at an estimated 13.3 million accounts, Rosenberg noted that bitcoin now has more customers that either Charles Schwab or E-Trade.
“But what was once an effective tool as digital cash payment has morphed into a speculative investment with zero transparency and there is not a chart of any currency, asset or security that looked like what bitcoin looks like today that did not end in tears,” the strategist said in his daily Breakfast with Dave report.
Higher volumes will put added pressure on the technological infrastructure of bitcoin exchanges, and also potentially make them more vulnerable to hacking. NiceHash, a bitcoin miner based in Slovenia, said on Thursday that a security breach may have led to the theft of about US$70 million worth of bitcoin.
Mainstream financial institutions have been visibly skeptical about bitcoin, most notably J.P. Morgan Chase & Co. chief executive Jamie Dimon, who has called it a “fraud,” and in October said, “if you’re stupid enough to buy it, you’ll pay the price for it one day.”
Some of the world’s largest brokers are now voicing their concerns about the process through which bitcoin futures come to market. Through an open letter to the U.S. derivatives watchdog from the Futures Industry Association, the brokers said more safeguards are needed to protect against bitcoin’s high volatility and the risk of manipulation in the underlying spot market.
“We remain apprehensive with the lack of transparency and regulation of the underlying reference products on which these futures contracts are based,” the FIA letter said.
Wall Street may have no choice but to warm up to bitcoin as more clients inquire about getting in on the action.
Mark Yusko, chief executive officer of North Carolina-based Morgan Creek Capital Management, which has more than US$3.5 billion in assets under management, thinks banks should be deathly afraid of bitcoin.
“This has the potential to displace the need for banks as a trust institution,” he told Bloomberg TV earlier this week. “If you and I have commerce using bitcoin, and it goes on the ledger on the blockchain, we don’t need a bank to confirm that that is a valid transaction.”
Yusko’s long-term forecast for bitcoin to hit US$400,000 is based on the digital currency’s gold equivalent, and the precious metal’s total global value of approximately US$8 trillion.
“The mania surrounding the cryptocurrency shows no signs of abating with the number of people calling its rise a bubble, also turning into a bubble,” said Michael Hewson, chief market analyst at CMC Markets. “As recent history has taught us, with respect to recent stock market moves, a bubble can keep expanding for much longer than most people think.”
With files from wire servicesBitcoinmaniaspreadsdigitalcurrencybrieflyapproachesUS$19,000